Income Investors Should Know That GSK plc (LON:GSK) Goes Ex-Dividend Soon

It looks like GSK plc (LON:GSK) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, GSK investors that purchase the stock on or after the 16th of May will not receive the dividend, which will be paid on the 11th of July.

The company's next dividend payment will be UK£0.15 per share, and in the last 12 months, the company paid a total of UK£0.58 per share. Based on the last year's worth of payments, GSK has a trailing yield of 3.2% on the current stock price of UK£17.995. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for GSK

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. GSK paid out 53% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether GSK generated enough free cash flow to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.

It's positive to see that GSK's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at GSK, with earnings per share up 3.6% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. GSK has seen its dividend decline 5.1% per annum on average over the past 10 years, which is not great to see. GSK is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Should investors buy GSK for the upcoming dividend? While earnings per share growth has been modest, GSK's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy GSK today.

In light of that, while GSK has an appealing dividend, it's worth knowing the risks involved with this stock. For example - GSK has 3 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.